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Diminishing returns to GDP and the Human Development Index

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  • Miles Cahill

Abstract

This paper investigates the assumption of the human development index (HDI) that per capita GDP has diminishing returns to development. Alternative returns to scale assumptions for per capita GDP are evaluated using correlation and principal components analyses conducted on four separate samples of countries. Specifically, the correlation between various transformations of GDP and the other elements of the HDI are examined, and the principal components method of factor analysis is used to construct HDI-like indexes with the alternative transformations of GDP. Results generally support the diminishing returns assumption employed by the HDI, as a concave transformation of GDP is most highly correlated with the other variables, and the corresponding principal components HDI construction explains the largest amount of the variance of the original variables.

Suggested Citation

  • Miles Cahill, 2002. "Diminishing returns to GDP and the Human Development Index," Applied Economics Letters, Taylor & Francis Journals, vol. 9(13), pages 885-887.
  • Handle: RePEc:taf:apeclt:v:9:y:2002:i:13:p:885-887
    DOI: 10.1080/13504850210158999
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    Cited by:

    1. Arcelus, F.J. & Sharma, B. & Srinivasan, G., 2005. "The Human Development Index Adjusted for Efficient Resource Utilization," WIDER Working Paper Series 008, World Institute for Development Economic Research (UNU-WIDER).
    2. Mehmet Pinar & Thanasis Stengos & Nikolas Topaloglou, 2013. "Measuring human development: a stochastic dominance approach," Journal of Economic Growth, Springer, vol. 18(1), pages 69-108, March.
    3. Miles Cahill, 2005. "Is the Human Development Index Redundant?," Eastern Economic Journal, Eastern Economic Association, vol. 31(1), pages 1-5, Winter.
    4. McGillivray, Mark & Noorbakhsh, Farhad, 2004. "Composite Indices of Human Well-being: Past, Present, and Future," WIDER Working Paper Series 063, World Institute for Development Economic Research (UNU-WIDER).
    5. Elizabeth Stanton, 2007. "The Human Development Index: A History," Working Papers wp127, Political Economy Research Institute, University of Massachusetts at Amherst.
    6. Nayak, Purusottam, 2013. "Methodological Developments in Human Development Literature," MPRA Paper 50608, University Library of Munich, Germany.

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